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Update (July 10) - In Epic Games podcast 17, Chair creative director Donald Mustard verified that Infinity Blade: Dungeons is canceled: "When the studio that was working on [Dungeons] was closed, the game was canceled. That's really all I can say".

From Tim Sweeney, the founder and CEO of Epic Games (February 8):

We’re closing Impossible Studios.

When former members of Big Huge Games approached Epic last year, we saw the opportunity to help a great group of people while putting them to work on a project that needed a team. It was a bold initiative and the Impossible folks made a gallant effort, but ultimately it wasn’t working out for Epic.

In addition to providing Impossible Studios employees with 3 months of severance pay, we’ll be giving the team the opportunity to form a new company with the Impossible Studios name and the awesome Impossibear logo.

This means that Infinity Blade: Dungeons is now on hold as we figure out the future of the project.[src]